Political musings. Commentary on random internet stuff. General provocation to debate.

Monday, June 25, 2012

Optimal intellectual property protection (part 2)

In which the state of current copyright law is discussed, a meager calculation is effected shewing the exercise of said law necessary to compensate rights-holders for their losses, and the stage is set for act 3.

The major U.S. laws currently in place to handle copyright infringement on the internet are: The United States Copyright Law, and the DMCA. Under the former, the maximum penalty for an infringer is $150,000 dollars per copyrighted work. An unknowing infringer--somewhat not protected by fair use provisions, but not willfully breaking the law--suffers a minimum penalty of $200 dollars per copyrighted work. Recent rulings have indicated that the granularity of a work is on the song (as opposed to album) level. Now, judging from iTunes, the market value of a song is about $0.99. That's quite a mark-up. Real world awards have reached truly astronomical levels, but let's look at a recent case, in which a judge knocked down a $675,000 dollar fine to $67,500 for willful infringement for 30 songs. That's $2,250 a song, down from an initial $22,500 a song.

Just working with the music numbers for a moment, things look a little like this:

In 2007, the RIAA report estimates sales losses of 3.7 billion dollars with their (quite reasonable) download substitution estimator. I'm ignoring their physical piracy numbers because they don't apply to the intarwebs points I want to make. To make up for this they'd have to levy the minimum fine on 18,500,000 (by the RIAA estimates, 0.3% of 6 billion yearly illegal downloads), the maximum fine on 24,667, or the judge determined "reasonable" $2250 fine on 1,644,445 instances of illegal downloads. Even the largest of these would be a tiny percentage of enforcement. Of course, the RIAA only managed to file 20,000 lawsuits (primarily ending in settlement) by 2008 when they mostly stopped doing that on account of it being hilariously unpopular. It seems like the settlements were generally between the "reasonable" and minimum fine levels, so the RIAA clearly wasn't going to recoup costs through these lawsuits. Since they gave up that tactic, they have focused on the DMCA, and on producing bigger, badder, scarier versions of it.

At issue in the DMCA and its would-be successors is the burden of enforcing copyright laws. Basically, the DMCA explicitly prohibits circumvention of copyright protections regardless of whether such circumventions are used to violate copyright, enacts the mechanism of "takedown notices" which limit the liability of compliant online service providers (OSPs) in exchange for rapid response to notification of infringement by copyright holders, and permits subpoenas of OSPs for user identity information. Copyright holders feel that these provisions are insufficient, and have proposed a variety of legislation holding hosting sights responsible for infringing content posted by users. Obviously, this imposes substantial costs, risks, and responsibilities on social networks and community content sites.

All this sets things up quite nicely for part 3: actual cost-benefit analysis!Potential costs: money of social network sites, money of taxpayers, money of RIAA and member organizations. Potential benefits: greater compensation of copyright holders, deterrence of copyright violation.

Of course, that's only if you forget that the goal of IP law is to incentivize the development of intellectual property. So, we'll be taking a look at the incentive maximizing level of IP protection as well. All that to come.